What is the right time to invest in the stock market?
There are several myths circulated around the stock market operation and it is high time, it needs to be checked and corrected.
One such myth is about "Timing Of The Stock Market".
It proves to be a very crucial fact to consider while investing especially when one is talking about the stock market.
People learn and hear about the stock market when it’s going high or when it’s profitable. They learn about it during the excitement period when the market is in a bull run. People tend to fall towards it with the hope to make money like other people they know and get benefitted by suddenly entering the market.
But it is also the time when they are struck by reality.
They notice an increased price of a particular stock which they once saw in a certainly lower price which forces them to think that they are rather late to enter the market or as if they just missed the bus. So, they wish hypothetically to buy the stocks earlier during lower prices and repent of not taking the decision and at the same time, thinking that they will buy the stocks when they again go down their current value.
It is the most common psychology of an investor.
So, do people try to time the market? Yes, they absolutely do and it is an established fact. Then what is the myth? The myth is, there is such thing as timing the market.
The Myth Got Established and Created by Value Added Service Providers.
It is possible to invest in good profitable companies during the bad market phase and alongside, it’s equally possible for companies to perform badly even when there is a good market phase. Thus, one should not rely on someone who promises that they will help you enter the market when it’s the right time. It is utterly a false and fake promise. And, it is started by service providers in the stock market.
These service providers claim to find value in investing but their idea is not shared by other idealistic people. That is why the whole investment community with all the investment portfolio managers and experts is divided into two parts, one who believes they can find value investing and another who calls themselves to be efficient market hypothesis people. These idealistic people in the stock market believe in Efficient Market Hypothesis.
What does this hypothesis say? It says the market is always efficient.
One can evaluate a company and its share price based on all the public information available about the company. For example, we know about Infosys employee base, their monthly billing, their quarterly results, and most probably about their revenue as well which is nothing but the secondary information required to rate the company when Infosys is doing a business.
The Efficient Market Hypothesis holds that the market is already efficient, you cannot time the market, all you can believe is that yes, the stock market is a place where you can invest and get better returns comparatively than FDs (Fixed Deposits), gold, and real estate.
The reason behind this is that the stock market invests in businesses and these businesses take risks. They borrow the money at certain interest rates and then it becomes their obligation to outperform and make more money at a rate that is preferably higher than the one they borrowed the money in.
The stock market is believed to provide better returns than all other investments or asset classes. All one needs to take care of is controlling the cost of the fund management. Thus, people who advocate the theory of efficient market hypothesis also promote investing in exchange-traded funds (ETFs).
ETFs are passive in nature. It comes at a very low expense, there is no need to time the market, and investors should keep investing every month in ETFs. So, if NSE (National Stock Exchange) is giving you 10% returns and Nifty 50 is giving you 10% returns overall on the index side then you will definitely get 10% return.
The theory of efficient market hypothesis came about because a lot of people who are idealistic in nature are reluctant to pay the high charges imposed by fund managers by approx. 2.5% and still give negative returns. They keep on charging every next year which is a wasteful resource. So, they thought of educating people on the same.
Anyone who promises to find a valuable investment for you is a completely false promise. Everyone is trying to find the best mechanism possible to evaluate the right price and the right information about the stocks. There is no way to predict it, it can only be done by some inside information which again is illegal, unethical, and cannot be trusted by idealistic people.
The SEBI (The Securities and Exchange Board of India) recommends creating a good portfolio with effective risk management to be profitable in the stock market.
So, the myth is there and is created by the service providers who tell you that they can time the stock market and then can charge you accordingly. They will not be able to charge you unless someone creates value for something. Hence, this myth about timing the stock market exists. And, it has been created by value-added services given by the investment industry.
Busting The Myth- Timing the stock market can’t be done.
Investing in the stock market is like investing in a business. In the long run, it’s good to enter at any time and never exit. There is no such thing as timing the market. This leads to a question of when to invest in the stock market? Here we can see some basic parameters which might be an answer to this question. People can anytime invest in the stock market based on their-
1. Financial Goals
2. Power Of Compounding
Each investor is different. They have financial needs, income, and preferences. Hence, for an investment to work for them, before thinking about what is the right time to invest in the share market? It is important to understand their financial needs and goals.
If someone invests in the stock market, they need patience and wait for the long term to earn better returns and create wealth. Power of compounding will do magic in investments. In the stock market, long-term investments can have the benefits of compounding your returns and can also beat inflation, because money sitting in cash will lose its value.
Cash is a bad investment. – By Warren Buffet
The long-term investor doesn't need to bother about risk. They analyze good companies, invest and diversify the portfolio with different sectors and can wait. If the market falls, they don't need to panic, because if the fundamentals of the company and business are good, it will go up again.
CONCLUSION- Invest when you have money and exit when you need money.
Every time you look at the market from the outside, it always looks volatile. One always wonders whether to invest when the nifty level is on the rise or when there will be a correction and the market goes back to normal as per expert advice?
One of the bitter truths is when it comes to investments and the stock market, people have their own emotions towards it despite being smart and intelligent. One should invest in productive assets and one should have their definition of identifying those. Timing the market is not a good idea from an investment perspective.
Do not enter or exit the stock market based on the stock prices and do not get influenced by the bear or bull market. If you know and understand the value of the company then you don’t have to worry about entering or exiting the stock market because everything depends upon the performance, profitability, and business model of the company.
If you invest at any level with a good company, in the long run, you will get good returns on stocks as well.
The right time to enter the market is when you have money and it should be done in a disciplined manner by learning portfolio management and risk management and exiting when you need the money.
There is absolutely no need to sell until you feel there is a better alternative to invest rather than stocks, and the company fundamentals are not as strong as before which is affecting its performance and market reputation.
Don’t time the market, no one has done it and no one can do it. There is no definition, there is no clear answer or way to know when is the right time to enter the market or what is the right time to exit.
All you have to do is to plan your investment in such a way that it keeps on giving you a good return. And you create it in the form of a portfolio knowing all the risks and always having a long-term horizon.
Invest when you have the money and exit when you need the money.
"The real fortunes in this country have been made by people who have been right about the business they invested in, and not right about the timing of the stock market." - Warren Buffett
Curator of " A Complete course on Indian Stock market".